McLeod on hardship

A worthwhile piece by Rob McLeod on how best to help people out of povety:

Recently I heard a successful businessman, nearing the end of his career, pondering what he would do if he had his time over again.

“I wish I’d given something back.” he lamented. “When I look at the poverty and suffering in the world today, I feel I could have made a difference to some other people’s lives if I hadn’t focused so much on my business.”

I reflected that his sentiment was admirable but his logic faulty. He had not taken anything from the community which he had a duty to give back.

On the contrary, he had produced goods and services that customers valued, created jobs, made money for investors and paid taxes.

Yes, being sucessful in business does not mean you have “taken” anything.  It (generally) means you have provided jobs, made customers happy and generated tax for the Government to spend.

Philanthropy should spring from other motives. The impulses and values that drive it are the same as those that operate within a family or small community: love, a sense of responsibility, an urge to see our children do well, neighbourliness and altruism. At its best, voluntary collective activity works well, so it’s no wonder people turn to that model in trying to solve the world’s problems.

Again, I agree.  It is not a sense of obligation that drives philanthropy for most people.  It is that mixture of altruism and responsibility.

… simply giving money to individuals or countries, whether it be by individuals or governments, does not address the causes of poverty.

And McLeod, as I read it, is not arguing against doing this.  Just saying donations alone alleviate but do not solve poverty.

Thirdly, governments cannot create wealth; they can only take it through taxation and redistribute it. There is ample evidence that redistribution can do harm as well as good, through creating welfarist attitudes and because it often breeds corruption.

Africa is a prime example of this, sadly.  The Pacific is far from exempt also.  And again I don’t read this as a call not to donate to these countries, but to realise there are downsides as well as benefits by what we do.

Consider the power of wealth creation compared to wealth redistribution in a New Zealand context – Treaty of Waitangi settlements. While important as a matter of justice, their economic significance has been exaggerated.

For example, there are about 633,000 Maori, and treaty settlements to date total around $743 million. This represents a one-off sum of almost $1200 per Maori which, at an after-tax rate of 4 per cent, represents an annual income of just $48 per recipient. The message is clear: governments, let alone treaty settlements, cannot be a source of material wealth for Maori.

This is a point Don Brash made some years ago.  It is absolutely important to settle the historical grievances, and the settlements can certainly provide a good base for further development, but when you divide it down to a per capita amount the impact is very very modest.

Maori have to generate wealth by participating in the market. A Maori school-leaver who starts work at 16 on $12 an hour, plateauing at just $20 per hour at age 25, would by 65 have earned a lump sum equivalent of $646,000. The equivalent tertiary qualified Maori starting at age 25 on an income of $42,000 that continued to increase each year at an average rate could expect to accumulate a lump sum of around $1.7 million by 65.

An extra million over the working life due to education and employment certainly beats $48 a year.

The work we do and how well we do it is in the end the key to our productivity. Improving it through better worker knowledge and training, better technology or more capital to work with, improving incentives through lowering taxes and eliminating stifling regulation, promoting competition to force businesses to perform better, ensuring as a nation we do what we do best and trade for the rest is the key determinant of our standard of living and the single most important contributor to reducing poverty.

Now people might say hey that guy McLeod is the Business Roundtable Chair, so let us ignore his message and attack the messenger.  I’ll just make the point that people should look at what Australian Labor PM Kevin Rudd is saying, and see if they can find much difference.

So in thinking about our New Year’s resolutions this year, for sure, let’s all commit to giving generously to our chosen charities. But let’s also remember the best thing we can do for New Zealand’s less fortunate citizens: promote the changes needed to improve productivity and create the rising tide that lifts all boats.

It is very unsexy but lifting productivity is what it is about.